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HUL reports Q2FY21 earnings: Should investors buy, sell or hold?

Updated : October 21, 2020 01:06 PM IST

CLSA said that HUL has reported in-line Q2 financials with 16 percent topline growth and share gains a key near-term priority.

Shares of Hindustan Unilever (HUL) rose in the early trade on Wednesday after the company reported an 8.7 percent uptick in its September quarter net profit at Rs 2,009 crore as against Rs 1,848 crore in the same period last year.

The company’s revenue from operations in Q2FY21 increased 16.1 percent to Rs 11,442 crore from Rs 9,852 crore, when compared to the same period last fiscal.

Read here: HUL Q2 net profit rises by 8.7% to Rs 2,009 crore

The EBITDA (Earnings Before Interest, Taxes, Depreciation) rose 17.4 percent to Rs 2,869 crore from Rs 2,443 crore while EBITDA margin expanded to 25.4 percent from 24.8 percent, year on year.

Home care business revenue fell 1.6 percent YoY to Rs 3,318 crore. The segment EBIT rose 14 percent to Rs 678 crore while EBIT margin rose by 280 bps to 20.4 percent.

Also Read: HUL Q2: Growth in foods & refreshment excludes M&A of health drinks, says CMD Mehta

Here are brokerages’ view on the stock after Q2 earnings:

Jefferies:

HUL managed to beat forecasts on earnings and witnessed a sequential pick-up across categories. Gross margin pressure was visible due to mix & input price inflation but managed well at the EBITDA level. The commentary was fairly optimistic although a key concern we picked-up is a rather slow trade offtake on winter portfolio pre-season, which management sees as a transient issue but a key monitorable given its importance to 3Q revenues & margins.

The brokerage has maintained a buy rating on the stock with a target price of Rs 2,650.

The outlook is cautiously optimistic as worst is behind & business momentum is picking-up; rural looks resilient while urban demand looks uncertain; GM pressure may continue on higher input price, Jefferies said.

CLSA

The brokerage said that HUL has reported in-line Q2 financials with 16 percent topline growth and share gains a key near-term priority.

“The company is prioritising volume over margin in the near term and consider this an apt strategy to expand penetration across categories. It should be able to upgrade consumers & recoup any margin losses,” CLSA said.

It has cut FY21-23 earnings estimates by 4-5% and continues to see the company as a structural play in Indian FMCG. CSLA maintained a Buy rating and raised target price to Rs 2,600 from Rs 2,525 earlier.

Motilal Oswal

The domestic brokerage house said that the company’s earnings growth gained further momentum in recent years (17% EPS CAGR in the past three years v/s ~12% CAGR over 10 years). That was particularly impressive given the weak mid-single-digit earnings growth posted by (much smaller) peers in recent years.

“We remain positive on company from a medium-term perspective encouraged by: (a) robust earnings growth potential beyond the near term owing to its portfolio and execution strengths, and (b) significant synergies in FY22E as a result of GSKCH. These factors suggest premium multiples are likely to sustain. Valuing the company at 55x Sep’22E merged EPS, we arrive at a target price of Rs 2,620, implying a 21% upside,” Motilal Oswal said.

Prabhudas Lilladher

The brokerage remains structurally positive on HUL given its strategy around emerging categories, increasing distribution, WIMI, digital market and strength in Supply chain. It estimates HUL to post EBIDTA CAGR of 15.9% over FY20-23 led by 200 bps margin expansion.

“We are upgrading HUL to Buy given strong growth and margin outlook, high FCF conversion (5-year average of >90%), 95% dividend payout and 18.2% PAT CAGR over FY1-23. HUL results beat expectations driven by double digit growth in Health, Nutrition and Hygiene and better than expected recovery in Personal care,” it said.

We shift our target price base from PE to DCF and assign a 15-month target price of Rs 2,502 (Rs 2,254 based on 46xFY23 earlier), it added.

ICICI Securities

Strong double-digit growth in health, hygiene and nutrition portfolio in 2QFY21 was good (overall volumes +1%). There appears a willingness to sacrifice gross margins to drive growth, in our view. Growth in nutrition business was underwhelming, however, per management, it should return with supply side constraints now being resolved.

“We cut our earnings estimates by ~5%; modelling revenue / EBITDA / PAT CAGR of 12 / 16 / 19 (%) over FY2020-22E. Maintain ADD rating with revised DCF-based revised target price at Rs 2,400 (was Rs 2,500). Key downside risks are delayed recovery in demand and irrational competition,” it said.

HDFC Securities

HUL posted a mixed result, with a marginal beat in revenue, but a slight miss in margins. The company clocked double-digit growth in 80 percent of its portfolio, which indicates a strong recovery.

"We expect a gradual recovery in core categories in 2HFY21. We maintain our below-consensus EPS estimate for FY21/FY22/FY23. We roll forward our target price to Sep-22E EPS and value HUL at 50x P/E to derive a TP of Rs 2,060. Maintain REDUCE on a muted absolute growth trajectory and limited scope for re-rating," it said.

At 12:20 pm, the stock price of HUL was trading 0.52 percent lower at Rs 2,160.90 on the BSE as against a 1 percent gain in the benchmark Sensex.

HUL reports Q2FY21 earnings: Should investors buy, sell or hold?

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